##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



(MARK ONE)



|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------



FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003



OR



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------



FOR THE TRANSITION PERIOD FROM
 TO



COMMISSION FILE NUMBER 333-21411



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ROSE HILLS COMPANY

(Exact Name of Registrant as Specified in its Charter)



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|Delaware                        |  | 13-3915765         
|------------------------------- |  | -------------------
|(State or Other Jurisdiction of |  | (I.R.S. Employer   
|Incorporation or Organization)  |  | Identification No.)



|3888 South Workman Mill Road             |  | 90601     
|---------------------------------------- |  | ----------
|Whittier, California                     |  | (Zip Code)
|(Address of Principal Executive Offices) |  |           



(562) 692-1212

Registrants Telephone Number, Including Area Code



N/A

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)



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Indicate by check x whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.    Yes  x   No ̈



Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes ̈No  x



The number of outstanding common shares as of August 10, 2003 was 1,000.



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##### Table of Contents

ROSE HILLS COMPANY AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Rose Hills Holding Corp.)



|                                                                                                  |  |                                                                                                          |  | Page
|------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- |  | ----
|PART I.    FINANCIAL INFORMATION                                                                  |  |                                                                                                         
|                                                                                                  | 
|ITEM 1.    FINANCIAL STATEMENTS:                                                                  |  |                                                                                                         
|                                                                                                  |  |                                                                                                         
|                                                                                                  |  | CONDENSED CONSOLIDATED BALANCE SHEETSas of June 30, 2003 and December 31, 2002                           |  | 1   
|                                                                                                  |  |                                                                                                         
|                                                                                                  |  | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSfor the Three and Six Months Ended June 30, 2003 and 2002 |  | 2   
|                                                                                                  |  |                                                                                                         
|                                                                                                  |  | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSfor the Six Months Ended June 30, 2003 and 2002           |  | 3   
|                                                                                                  |  |                                                                                                         
|                                                                                                  |  | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                     |  | 4-10
|                                                                                                  | 
|ITEM 2.    
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 11-17                                                                                                   
|                                                                                                  | 
|ITEM 3.    
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 17                                                                                                      
|                                                                                                  | 
|ITEM 4.    
CONTROLS AND PROCEDURES                                                               |  | 17                                                                                                      
|                                                                                                  | 
|PART II.    OTHER INFORMATION                                                                     |  |                                                                                                         
|                                                                                                  | 
|ITEM 5.    
OTHER INFORMATION                                                                     |  | 18                                                                                                      
|                                                                                                  | 
|ITEM 6.    
EXHIBITS AND REPORTS ON FORM 8-K                                                      |  | 19                                                                                                      
|                                                                                                  | 
|SIGNATURE                                                                                         |  | 20                                                                                                      
|                                                                                                  | 
|INDEX OF EXHIBITS                                                                                 |  | 21                                                                                                      



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##### Table of Contents

ROSE HILLS COMPANY AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Rose Hills Holding Corp.)



CONDENSED CONSOLIDATED BALANCE SHEETS

As of December 31, 2002 and June 30, 2003

(In thousands)

(Unaudited)



|                                                                         |  | December 31,2002 |         | June 30,2003
|------------------------------------------------------------------------ |  | ---------------- | ------- | ------------
|ASSETS                                                                   |  |                  |         |             
|Current assets:                                                          |  |                  |         |             
|Cash and cash equivalents                                                |  | $                | 8,093   |             
|Accounts receivable, net of allowances                                   |  |                  | 10,064  |             
|Inventories                                                              |  |                  | 753     |             
|Prepaid expenses and other current assets                                |  |                  | 859     |             
|                                                                         |  |                  |         |             
|Total current assets                                                     |  |                  | 19,769  |             
|Long term receivables, net of allowances                                 |  |                  | 188,997 |             
|Cemetery property, at cost                                               |  |                  | 35,845  |             
|Property and equipment, net                                              |  |                  | 81,878  |             
|Deferred tax asset                                                       |  |                  | 1,486   |             
|Goodwill                                                                 |  |                  | 66,941  |             
|Receivables from service trusts                                          |  |                  | 8,098   |             
|Other assets                                                             |  |                  | 2,919   |             
|                                                                         |  |                  |         |             
|Total assets                                                             |  | $                | 405,933 |             
|                                                                         |  |                  |         |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                     |  |                  |         |             
|Current liabilities:                                                     |  |                  |         |             
|Accounts payable and accrued liabilities                                 |  | $                | 8,974   |             
|Current portion of long-term debt                                        |  |                  | 53,306  |             
|                                                                         |  |                  |         |             
|Total current liabilities                                                |  |                  | 62,280  |             
|Retirement plan liabilities                                              |  |                  | 6,629   |             
|Subordinated notes payable                                               |  |                  | 77,800  |             
|Other long-term debt                                                     |  |                  | 546     |             
|Other liabilities                                                        |  |                  | 78      |             
|Deferred pre-need funeral contract revenue                               |  |                  | 179,323 |             
|Deferred pre-need cemetery contract revenue                              |  |                  | 9,630   |             
|                                                                         |  |                  |         |             
|Total liabilities                                                        |  |                  | 336,286 |             
|Commitments and contingencies                                            |  |                  |         |             
|Stockholders equity:                                                    |  |                  |         |             
|Common stock, par value of $.01. Authorized and outstanding 1,000 shares |  |                  |        |             
|Additional paid-in capital                                               |  |                  | 64,881  |             
|Retained earnings                                                        |  |                  | 4,766   |             
|                                                                         |  |                  |         |             
|Total stockholders equity                                               |  |                  | 69,647  |             
|                                                                         |  |                  |         |             
|Total liabilities and stockholders equity                               |  | $                | 405,933 |             
|                                                                         |  |                  |         |             



See accompanying
condensed notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

ROSE HILLS COMPANY AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Rose Hills Holding Corp.)



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)



|                                    |  | Three Months EndedJune 30, |        |   | Six Months Ended June 30, |  
|----------------------------------- |  | -------------------------- | ------ | - | ------------------------- | -
|                                    |  | 2002                       |        |   | 2003                      |  
|Sales and services:                 |  |                            |        |   |                           |  
|Funeral sales and services          |  | $                          | 8,353  |   |                           | $
|Cemetery sales and services         |  |                            | 11,145 |   |                           |  
|                                    |  |                            |        |   |                           |  
|Total sales and services            |  |                            | 19,498 |   |                           |  
|                                    |  |                            |        |   |                           |  
|Cost of sales and services:         |  |                            |        |   |                           |  
|Funeral sales and services          |  |                            | 5,559  |   |                           |  
|Cemetery sales and services         |  |                            | 8,033  |   |                           |  
|                                    |  |                            |        |   |                           |  
|Total cost of sales and services    |  |                            | 13,592 |   |                           |  
|                                    |  |                            |        |   |                           |  
|Gross profit                        |  |                            | 5,906  |   |                           |  
|General and administrative expenses |  |                            | 1,568  |   |                           |  
|Amortization of intangibles assets  |  |                            | (6     | ) |                           |  
|                                    |  |                            |        |   |                           |  
|Income from operations              |  |                            | 4,344  |   |                           |  
|                                    |  |                            |        |  
|Other income (expense):             |  |                            |        |   |                           |  
|Interest expense                    |  |                            | (2,996 | ) |                           |  
|Finance and interest income         |  |                            | 570    |   |                           |  
|                                    |  |                            |        |   |                           |  
|Total other expense, net            |  |                            | (2,426 | ) |                           |  
|Income before income taxes          |  |                            | 1,918  |   |                           |  
|Income tax expense                  |  |                            | 854    |   |                           |  
|                                    |  |                            |        |   |                           |  
|Net income                          |  | $                          | 1,064  |   |                           | $
|                                    |  |                            |        |   |                           |  





See accompanying condensed notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

ROSE HILLS COMPANY AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Rose Hills Holding Corp.)



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                  |  | Six Months Ended June 30, |       
|--------------------------------------------------------------------------------- |  | ------------------------- | ------
|                                                                                  |  | 2002                      |       
|Cash flows from operating activities:                                             |  |                           |       
|Net income                                                                        |  | $                         | 1,861 
|                                                                                  |  |                           |       
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |                           |       
|Depreciation and amortization                                                     |  |                           | 1,708 
|Amortization of subordinated notes discount                                       |  |                           | 482   
|Amortization of cemetery property                                                 |  |                           | 1,042 
|Provision for bad debts and sales cancellations                                   |  |                           | 1,003 
|Loss from disposal of property and equipment                                      |  |                           |      
|Changes in operating assets and liabilities:                                      |  |                           |       
|Accounts receivable                                                               |  |                           | 3,001 
|Prearranged funeral contracts receivable                                          |  |                           | (4,450
|Inventories                                                                       |  |                           | (149  
|Prepaid expenses and other current assets                                         |  |                           | 150   
|Accounts payable and accrued liabilities                                          |  |                           | (3,712
|Retirement plan liabilities                                                       |  |                           | (33   
|Net deferred revenue                                                              |  |                           | 4,363 
|Other assets and liabilities, net                                                 |  |                           | (303  
|                                                                                  |  |                           |       
|Total adjustments                                                                 |  |                           | 3,102 
|                                                                                  |  |                           |       
|Net cash provided by operating activities                                         |  |                           | 4,963 
|                                                                                  |  |                           |       
|                                                                                  |  |                          
|Cash flows from investing activities:                                             |  |                           |       
|Capital expenditures                                                              |  |                           | (1,702
|Proceeds from disposal of property and equipment                                  |  |                           |      
|                                                                                  |  |                           |       
|Net cash used in investing activities                                             |  |                           | (1,702
|                                                                                  |  |                           |       
|                                                                                  |  |                          
|Cash flows from financing activities:                                             |  |                           |       
|Cash contribution from parent                                                     |  |                           |      
|Principal payments of long-term debt                                              |  |                           | (4,470
|Principal payments of capital lease obligations                                   |  |                           | (237  
|Other long-term debt                                                              |  |                           |      
|                                                                                  |  |                           |       
|Net cash used in financing activities                                             |  |                           | (4,707
|                                                                                  |  |                           |       
|Net (decrease)/increase in cash and cash equivalents                              |  |                           | (1,446
|Cash and cash equivalents at beginning of period                                  |  |                           | 7,639 
|                                                                                  |  |                           |       
|Cash and cash equivalents at end of period                                        |  | $                         | 6,193 
|                                                                                  |  |                           |       
|Supplemental disclosures of cash flow information:                                |  |                           |       
|Cash paid during the period for:                                                  |  |                           |       
|Interest                                                                          |  | $                         | 4,856 
|Income taxes                                                                      |  |                           | 30    
|                                                                                  |  |                           |       



See accompanying
condensed notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

ROSE HILLS COMPANY AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Rose Hills Holding Corp.)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1.    BASIS OF PRESENTATION



The accompanying June 30, 2003 interim condensed consolidated financial
statements of Rose Hills Company and subsidiaries (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with the instructions to
Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States of America.
In the opinion of management, the accompanying interim condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation of the financial
condition, results of operations and cash flows for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Companys
annual report on Form 10-K for the year ended December 31, 2002.



The Company, a Delaware corporation, is a wholly owned subsidiary of Rose Hills Holding Corp. (RH Holding). The Company was formed in 1996 for purposes of acquiring Roses, Inc., the owner and operator of the Rose Hills Mortuary,
and purchasing certain assets and assuming certain liabilities of Rose Hills Memorial Park Association (the Association) and Workman Mill Company, the owners of the real property and other cemetery assets of the Rose Hills Memorial Park
(Rose Hills Cemetery) (collectively the 1996 Acquisition).



In April 2001, the shareholders of RH Holding reached an agreement (Loewen Blackstone Settlement Agreement) pursuant to which Blackstone Capital Partners II Merchant Banking Fund L.P. and its affiliates (collectively
Blackstone), then the beneficial owner of 79.55% of the outstanding common stock of the Company, would exercise its put right and the minority shareholder, a reorganized Loewen Group International, Inc. (Loewen), would
acquire all of the stock of RH Holding owned by Blackstone upon Loewens emergence from bankruptcy. The U.S. Bankruptcy Court confirmed Loewens reorganization plan, including the proposed acquisition of shares of RH Holding from
Blackstone on December 5, 2001, and the plan became effective on January 2, 2002. Effective with its emergence from bankruptcy, Loewen has since been renamed the Alderwoods Group, Inc. (Alderwoods). Since the U.S. Bankruptcy Court
approved the reorganization plan on December 5, 2001, such approval effectively obligated Blackstone and Loewen to consummate the put agreement. Accordingly, the Company has recorded the push-down of Alderwoods fresh start reporting in its
consolidated balance sheet as of December 31, 2001.



On January
3, 2002, in full satisfaction of its obligations under the put arrangement, Alderwoods delivered to Blackstone unsecured, subordinated notes in the aggregate principal amount of $24,678,571 and Alderwoods common stock with an aggregate value
of $6,515,143. As a result of the delivery of the consideration, Alderwoods completed its purchase of all of the stock of RH Holding beneficially owned by Blackstone. Upon closing of the transaction (Alderwoods Purchase Transaction),
Alderwoods increased its ownership from 20.45% to 100% of the outstanding common stock of RH Holding, thereby causing the Company to become a wholly owned subsidiary of Alderwoods. The shareholders agreement, and all other agreements, between
Alderwoods and Blackstone with respect to the Company terminated as of the closing of the transaction, and Alderwoods became entitled to elect all of the directors of the Company as of such date.



As of June 30, 2003, the Company operated nine funeral homes, three funeral
home and cemetery combination properties and one cemetery property in the Southern California area. The Company offers cemetery interment and professional mortuary services, in addition to caskets, memorials, vaults, and flowers for sale on an



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##### Table of Contents

ROSE HILLS COMPANY AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Rose Hills Holding Corp.)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



at-need basis. Pre-need funeral and cemetery products and services are offered on insurance contracts from which the Company earns commission.



The accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America and the prevailing practices within the cemetery and mortuary industry. All significant intercompany accounts and transactions have been eliminated.



Reclassifications



Certain reclassifications have been made to the 2002 consolidated financial statements to conform to the 2003 presentation.



2.    CRITICAL ACCOUNTING ESTIMATES AND POLICIES



Cemetery Revenue Recognition



Pre-need sales of cemetery interment rights are recognized in accordance
with the guidance of Statement of Financial Accounting Standards (SFAS) No. 66, Accounting for the Sales of Real Estate. Accordingly, sales of interment rights are recognized under the full accrual method, the percentage of completion
method, or the deposit method depending on the level of the buyers down payment and any continuing involvement the Company has in developing sold property. Direct cost of goods sold are deferred and recognized concurrent with the recognition
of deferred sales. Costs relating to the sale of cemetery interment rights, including sales commissions, are expensed in the period incurred.



Allowances for anticipated customer cancellations and refunds are provided at the date of sale based on managements estimate of expected
cancellations using historical trends over the past six years. For the six months ended June 30, 2002 and 2003, a 6% effective cancellation rate was used to provide for anticipated cancellations and refunds. Actual cancellation rates in the future
may result in a change in estimate. A one percent change in the estimated cancellation rate would cause an approximate $300,000 change in the Companys annual pre-need cemetery revenues.



Pre-need merchandise and service sales, and their direct cost of goods sold,
are recognized at the time of delivery of merchandise or performance of service. Costs relating to the sale of merchandise and services, including sales commissions, are expensed in the period incurred.



At-need sales of cemetery interment rights, merchandise and services are
recognized when the merchandise is delivered or the service is rendered.



A portion of the proceeds from the sale of interment rights is required by state law to be paid into an Endowment Care Fund to provide for the perpetual care of the associated properties. Cemetery revenue is recorded
net of these amounts. Interest and dividend earnings of the Endowment Care Fund are used to defray the maintenance costs of cemeteries which are expensed as incurred. Additionally, pursuant to state law, the proceeds from the sale of pre-need
merchandise and services may also be required to be paid into trust funds.



It is the Companys policy to voluntarily trust 100% of pre-need service revenue when contracts are paid in full. Also, the Company has an agreement with a vendor to purchase pre-need merchandise when the sales



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##### Table of Contents

ROSE HILLS COMPANY AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Rose Hills Holding Corp.)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



contracts are paid in full. Funds voluntarily trusted for pre-need cemetery services are included in the consolidated financial statements.



Funeral Revenue Recognition



Pre-arranged funeral services contracts provide for future funeral services
and are generally determined by prices prevailing at the time the contract is signed. The payments made under the contract are either placed in trust or are used to pay the premiums of third-party life insurance policies under which the Company is
designated as the beneficiary. The pre-need funeral insurance policies sold by the Company are whole-life policies sold on a pre-need basis to pay for the cost of funeral services. Commissions earned are based on a combination of factors, such as
the amount of funeral cost coverage sold, the age of the insured and the volume of monthly sales activity. Insurance commissions earned and related selling expenses are recognized when the insurance company accepts the policies. Except for insurance
commissions, no income is recognized until the performance of a specific funeral.



Income from trust fund principal amounts and insurance contract amounts, together with trust fund investment earnings retained in trust and annual insurance benefits, are deferred until the service is performed. The
Company estimates that trust fund investment earnings and annual insurance benefits exceed the increase in cost over time of providing the related services. Upon performance of the specific funeral service, the Company will recognize the trust fund
principal amount or insurance contract amounts together with the accumulated trust earnings and annual insurance benefits as funeral revenues. Costs relating to the sale of pre-arranged funeral services, including sales commission expense, are
expensed in the period incurred.



At-need funeral services
revenues are recognized when the service is performed.



Valuation of
Long-Lived Assets



In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-lived Assets, the Company reviews the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company utilizes the most current independent appraisals or estimates the fair values of
long-lived assets when independent information is not available, including, among other things, estimated lives and residual values, and believes such estimates to be reasonable. Accordingly, different assumptions related to cash flows or fair
values of long-lived assets could materially affect the Companys estimates.



Valuation of Goodwill



In accordance with SFAS
No. 142, Goodwill and Other Intangible Assets, goodwill and intangible assets with indefinite lives are reviewed for impairment on an annual basis, as well as on the occurrence of certain significant events. Each of the Companys
reporting segments, Funeral and Cemetery, are reviewed independently. The annual review entails determining an estimated fair value of goodwill for comparison to the carrying amount of goodwill, to assess whether or not impairment has occurred. In
determination of the estimated



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##### Table of Contents

ROSE HILLS COMPANY AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Rose Hills Holding Corp.)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



fair value of goodwill, the Company compared the net carrying value of assets less liabilities to the discounted cash flows of each segment. Such
determination involves complex assumptions; accordingly, if any estimates or related underlying assumptions change in the future, the Company may be required to record goodwill impairment charges that result. The Company performs its annual goodwill
impairment review on October 31 of each year.



3.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS



In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities. FIN No. 46 clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors lack certain characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties, which is provided through other interests that will absorb some or all of the expected losses of the entity. FIN No. 46 applies immediately to variable interest
entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities
in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company is in the process of determining the impact, if any, the adoption of FIN No. 46 will have on its accounting for its receivables from funeral and
cemetery trusts, as well as other aspects of the business.



In
April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS No. 133. In addition,
SFAS No. 149 clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except as specifically
noted in SFAS No. 149. SFAS No. 149 should be applied prospectively. The Company did not have any derivative instruments or involved in any hedging activities as of June 30, 2003 and will apply the provisions prospectively to any future derivative
instruments or hedging activities.



In May 2003, the FASB
issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 changes the accounting for certain financial instruments that, under previous guidance, were accounted
for as equity. SFAS No. 150 affects the issuers accounting for three types of freestanding financial instruments: (1) mandatory redeemable shares, which the issuer is obligated to buy back in exchange for cash or other assets; (2) put options
and forward purchase contracts that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and, (3) obligations that can be settled with shares, the monetary value of which is fixed, tied solely or
predominantly to a variable such as a market index, or varies inversely with the value of the issuers shares. Most of the guidance in SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003. The
adoption of SFAS No. 150 did not have an impact on the Companys financial position or results from operations.



4.    LONG-TERM RECEIVABLES



The balance in long-term receivables represents amounts due from customer receivables beyond one year and related allowance for doubtful accounts, funeral
trust funds less an allowance for cancellations and non-



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##### Table of Contents

ROSE HILLS COMPANY AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Rose Hills Holding Corp.)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



fulfillment, insurance companies for unperformed, price guaranteed, pre-need funeral contracts and allowance for cancellations and non-fulfillment, and
unearned finance income. The components of accounts receivable in the consolidated balance sheets are as follows (in thousands):



|                                                                                       |  | December 31,2002 |         |   | June 30,2003 |  
|-------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------ | -
|Funeral installment contracts                                                          |  | $                | 1,282   |   |              | $
|Allowance for doubtful accounts                                                        |  |                  | (131    | ) |              |  
|Pre-need cemetery installment contracts                                                |  |                  | 10,427  |   |              |  
|Allowance for cancellations and refunds                                                |  |                  | (1,214  | ) |              |  
|Amounts receivable from funeral trusts                                                 |  |                  | 4,286   |   |              |  
|Amounts receivable from third-party insurance companies                                |  |                  | 178,356 |   |              |  
|Allowance for cancellations and non-fulfillmentfuneral trusts and insurance companies |  |                  | (3,319  | ) |              |  
|Unearned finance income                                                                |  |                  | (690    | ) |              |  
|                                                                                       |  |                  |         |   |              |  
|                                                                                       |  | $                | 188,997 |   |              | $
|                                                                                       |  |                  |         |   |              |  



For funeral and
cemetery installment contracts, an allowance for cancellations and refunds is provided at the date of sale based on managements estimates.



Amounts receivable from funeral trusts represent the proceeds deposited in the funeral trust funds. Amounts receivable from third party insurance
companies represent the value of the unserviced policies. An allowance for cancellations and non-fulfillment by company-owned funeral homes is provided at the date of sale based upon managements estimates and is offset by an allowance against
deferred funeral trust and insurance contract revenue. The company will receive these amounts when the contracted services are performed.



5.    LONG-TERM DEBT



Long-term debt consists of the following at December 31, 2002 and June 30, 2003 (in thousands):



|                                                                                                                                                                                                            |  | December 31,2002 |         |   | June 30,2003 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------ | -
|Borrowings outstanding under Bank Credit Agreement, due November 2003                                                                                                                                       |  | $                | 52,642  |   |              | $
|9.5% Senior subordinated notes due November 15, 2004, with an effective interest rate of 11.13% net of unamortized discount of
$1.7 million                                                                 |  |                  | 77,800  |   |              |  
|Notes payable and liabilities under non-compete agreements bearing interest at rates ranging from 7.46% to 9%. The notes and
non-compete agreements have variable maturities ranging from 2003 through 2007 |  |                  | 551     |   |              |  
|Capital lease obligations                                                                                                                                                                                   |  |                  | 659     |   |              |  
|                                                                                                                                                                                                            |  |                  |         |   |              |  
|                                                                                                                                                                                                            |  |                  | 131,652 |   |              |  
|Less current portion                                                                                                                                                                                        |  |                  | (53,306 | ) |              |  
|                                                                                                                                                                                                            |  |                  |         |   |              |  
|Long-term debt                                                                                                                                                                                              |  | $                | 78,346  |   |              | $
|                                                                                                                                                                                                            |  |                  |         |   |              |  



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##### Table of Contents

ROSE HILLS COMPANY AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Rose Hills Holding Corp.)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



At June 30, 2003, annual maturities of long-term debt consisted of the following (in thousands):



|At June 30: |  |   |       
|----------- |  | - | ------
|2004        |  | $ | 532   
|2005        |  |   | 78,646
|2006        |  |   | 28    
|2007        |  |   | 19    
|2008        |  |   | 6     
|Thereafter  |  |   | 52    
|            |  |   |       
|            |  | $ | 79,283
|            |  |   |       



In connection with the
1996 Acquisition, the Company entered into senior secured amortization extended term loan facilities (the Bank Term Facility) in an aggregate principal amount of $75.0 million and a senior secured revolving credit facility (the
Bank Revolving Facility) in an aggregate principal amount of $25.0 million (amended in May 2001 to $10.0 million).



On April 1, 2003, the Company repaid all of the outstanding debt under the Bank Term Facility using a $45.0 million cash equity contribution from
Alderwoods and approximately $7.6 million of cash on hand. The Alderwoods equity cash contribution required an amendment to Alderwoods $75.0 million Credit Facility Agreement. Under the terms of the amended Alderwoods Credit Facility
Agreement, Alderwoods obligations thereunder are guaranteed by RH Holding, the Company and the Companys Subsidiaries, and the lenders thereunder have received a first priority security interest in and lien on all personal property of RH
Holding, the Company and the Companys Subsidiaries and the real property of eight affiliate funeral homes and cemeteries. Real property at Rose Hills Mortuary and Memorial Park is not included as security under the Alderwoods Credit Facility
Agreement. The Company did not renew its Bank Revolving Facility which expired April 1, 2003. Accordingly, the restrictions under the Bank Term Facility have ceased.



In connection with the 1996 Acquisition, the Company also issued $80 million of 91/2% Senior Subordinated Notes due 2004, which were exchanged in September 1997 for $80 million of 91/2% Senior Subordinated Notes due 2004 (the Notes) that were registered under the Securities Act of 1933.
The Notes mature on November 15, 2004. Interest on the Notes is payable semi-annually on May 15 and November 15 at the annual rate of 91/2%. The Notes are redeemable in cash at the option of the Company, in whole or in part, at any time on or after November 15, 2000, at prices ranging from 104.75% with annual reductions to 100% in 2003 plus accrued and unpaid
interest, if any, to the redemption date. The proceeds of the Notes were used, in part, to finance the 1996 Acquisition.



The Company and its Subsidiaries are subject to certain restrictive covenants contained in the indenture to the Notes, including, but not limited to,
covenants imposing limitations on: the incurrence of additional indebtedness; certain payments, including dividends and investments; the creation of liens; sales of assets and preferred stock; transactions with interested persons; payment
restrictions affecting subsidiaries; sale-leaseback transactions; and mergers and consolidations. The indenture does allow for dividend payments out of capital contributions received after the issuance of the Notes. In addition, dividend payments
are allowed up to 50% of accumulated earnings (or if such accumulated earnings are a deficit, minus 100% of such deficit) since the issuance of the Notes. As of June 30, 2003, $30.8 million of dividends are permitted under the Notes covenants.
At June 30, 2003 the Company was in compliance with the terms of the indenture.



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##### Table of Contents

ROSE HILLS COMPANY AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Rose Hills Holding Corp.)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company assumed liabilities under notes payable and non-compete agreements from the contributed
affiliate locations in the 1996 Acquisition. The notes payable are secured by land and bear interest at rates ranging from 7.46% to 8.00%. The non-compete agreements are recorded at the net present value of future payments discounted at 9.00%.



6.    INCOME TAXES



In connection with the Alderwoods Purchase Transaction, effective January 3,
2002, the Company will be included in the consolidated income tax returns of the Alderwoods Group, Inc. Net operating loss carryover benefits were not available to offset income in 2002 or 2003.



The income tax provision for the six-month periods ended June 30, 2002 and
2003 was $1.3 million and $2.2 million, respectively, and reflects the enacted tax rate of 34% and 6% for Federal and California, an effective income tax rate of 40%. The current period income tax liability is due to the Alderwoods Group, Inc. and
is included in accounts payable and accrued liabilities in the Consolidated Balance Sheet. Prior to 2002, the Company filed separate income tax returns.



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##### Table of Contents

ITEM  2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

| | RESULTS |  | OF OPERATIONS.
| | ------- |  | --------------



OVERVIEW



Rose Hills
Company, a Delaware corporation, is a wholly owned subsidiary of RH Holding. The Company was formed in 1996 for purposes of acquiring Roses, Inc., the owner and operator of the Rose Hills Mortuary, and purchasing certain assets and assuming certain
liabilities of Rose Hills Memorial Park Association and Workman Mill Company, the owners of the real property and other cemetery assets of the Rose Hills Memorial Park.



In April 2001, the shareholders of RH Holding reached an agreement pursuant to which Blackstone, then the beneficial owner
of 79.55% of the outstanding common stock of the Company, would exercise its put right and the minority shareholder, a reorganized Loewen, would acquire all of the stock of RH Holding owned by Blackstone upon Loewens emergence from bankruptcy.
The U.S. Bankruptcy Court confirmed Loewens reorganization plan, including the proposed acquisition of shares of RH Holding from Blackstone on December 5, 2001, and the plan became effective on January 2, 2002. Effective with its emergence
from bankruptcy, Loewen has since been renamed the Alderwoods Group, Inc. Since the U.S. Bankruptcy Court approved the reorganization plan on December 5, 2001, such approval effectively obligated Blackstone and Loewen to consummate the put
agreement. Accordingly, the Company has recorded the push-down of Alderwoods fresh start reporting in its consolidated balance sheet as of December 31, 2001.



On January 3, 2002, in full satisfaction of its obligations under the put arrangement, Alderwoods delivered to Blackstone
unsecured, subordinated notes in the aggregate principal amount of $24,678,571 and Alderwoods common stock with an aggregate value of $6,515,143. As a result of the delivery of the consideration, Alderwoods completed its purchase of all of the
stock of RH Holding beneficially owned by Blackstone. Upon closing of the Alderwoods Purchase Transaction, Alderwoods increased its ownership from 20.45% to 100% of the outstanding common stock of RH Holding, thereby causing the Company to become a
wholly owned subsidiary of Alderwoods. The shareholders agreement, and all other agreements, between Alderwoods and Blackstone with respect to the Company terminated as of the closing of the transaction, and Alderwoods became entitled to elect all
of the directors of the Company as of such date.



Rose Hills
Mortuary and Memorial Park is the largest, single-location cemetery and funeral home combination in the United States, and the Cemetery is the largest, single-location cemetery in the United States. Rose Hills Memorial Park and the Rose Hills
Mortuary have been continuously operating since 1914 and 1956, respectively. Rose Hills is situated less than 14 miles from downtown Los Angeles on approximately 1,400 acres of land near Whittier, California. In addition to Rose Hills, the Company
operated nine funeral homes, two funeral home cemetery combination properties and one cemetery property (collectively the Affiliates) as of June 30, 2003. Management believes that Rose Hills, together with the Affiliates, constitute a
strategic assembly of cemeteries and funeral homes in the greater Los Angeles area



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



Accounting estimates and policies that the Company believes are most important to the portrayal of the Companys financial condition and results, and require managements most difficult, subjective or
complex judgments are described under Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations in Rose Hills and Subsidiaries Annual Report as of December 31, 2002, on Form 10-K as filed
with the U.S. Securities and Exchange Commission. Such critical accounting estimates and policies are also summarized in note 2 to the unaudited condensed consolidated financial statements included in this report on Form 10-Q.



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##### Table of Contents

RESULTS OF OPERATIONS



The following table sets forth details of certain income statement data (in millions):



|                                    |  | Three Months EndedJune 30, |      | Six Months EndedJune 30,
|----------------------------------- |  | -------------------------- | ---- | ------------------------
|                                    |  | 2002                       |      | 2003                    
|Sales and services:                 |  |                            |      |                         
|Funeral:                            |  |                            |      |                         
|Services and merchandise            |  | $                          | 7.1  |                         
|Insurance commissions               |  |                            | 1.1  |                         
|Disposed locations                  |  |                            | 0.2  |                         
|Other                               |  |                            |     |                         
|                                    |  |                            |      |                         
|Total funeral sales and services    |  | $                          | 8.4  |                         
|Cemetery:                           |  |                            |      |                         
|Pre-need sales                      |  |                            | 6.5  |                         
|At-need sales                       |  |                            | 3.9  |                         
|Endowment care earnings             |  |                            | 0.7  |                         
|                                    |  |                            |      |                         
|Total cemetery sales and services   |  | $                          | 11.1 |                         
|                                    |  |                            |      |                         
|Total sales and services            |  | $                          | 19.5 |                         
|Gross profit:                       |  |                            |      |                         
|Funeral                             |  | $                          | 2.8  |                         
|Cemetery                            |  |                            | 3.1  |                         
|Disposed locations                  |  |                            |     |                         
|                                    |  |                            |      |                         
|Total gross profit                  |  | $                          | 5.9  |                         
|Other:                              |  |                            |      |                         
|General and administrative expenses |  | $                          | 1.6  |                         
|Interest expense                    |  | $                          | 3.0  |                         



The following table
sets forth certain income statement data as a percentage of sales for the Company.



|                                    |  | Three Months Ended June 30, |   |  | Six Months EndedJune 30, |  
|----------------------------------- |  | --------------------------- | - |  | ------------------------ | -
|                                    |  | 2002                        |   |  | 2003                     |  
|Sales and services:                 |  |                             |   |  |                          |  
|Funeral sales and services          |  | 43                          | % |  | 36                       | %
|Cemetery sales and services         |  | 57                          | % |  | 64                       | %
|                                    |  |                             |   |  |                          |  
|Total sales and services            |  | 100                         | % |  | 100                      | %
|Gross profit:                       |  |                             |   |  |                          |  
|Funeral sales and services          |  | 33                          | % |  | 28                       | %
|Cemetery sales and services         |  | 28                          | % |  | 32                       | %
|Total gross profit                  |  | 30                          | % |  | 30                       | %
|Other:                              |  |                             |   |  |                          |  
|General and administrative expenses |  | 8                           | % |  | 8                        | %
|Interest expense                    |  | 15                          | % |  | 11                       | %



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##### Table of Contents

THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002



Consolidated revenues for the quarter ended June 30, 2003 were $20.9 million
compared to $19.5 million for the quarter ended June 30, 2002. Consolidated gross profit for the second quarter of 2003 totaled $6.3 million compared to $5.9 million for the second quarter of 2002. As a percentage of revenue, consolidated gross
profit for the second quarter of 2003 at 30% was comparable to last year.



Funeral Operations:



Revenues from funeral operations decreased 9.5% to $7.6 million in 2003 compared to $8.4 million in 2002. Excluding one discontinued location in September 2002, the funeral segment revenues were $7.0 million compared to $7.1 million in
2002. On a same store sales basis, the Company performed 1,670 funeral service calls during the second quarter of 2003, compared to 1,678 last year. The data published according to the Centers for Disease Control and Prevention (CDC) within our
primary Los Angeles market indicate a decrease in deaths during the second quarter of 2003 compared to the same period last year. The average revenue per funeral call was $3,858 and was comparable to last year. Pre-need insurance commission revenue
totaled $0.6 million compared to $1.1 million in the prior year, a decrease of 45%. This decrease is expected to be temporary while the sales force conducts new training sessions to increase persistency rates.



As a percentage of sales, the gross profit for the funeral segment decreased
from 33% to 28%. The decline in margin is partially due a casket margin decrease of 5% due to an increase in casket wholesale costs effective January 1, 2003 without corresponding sales price increases. During the three months ended June 30, 2003,
the Companys funeral and cemetery insurance and trust backlog decreased $0.9 million to $182.6 million.



Cemetery Operations:



Revenues from cemetery operations increased 20% to $13.3 million compared to last year at $11.1 million. Pre-need cemetery revenue increased 26% from $6.5
million in 2002 to $8.2 million in 2003. A favorable sales mix, compared to last year, at Rose Hills Memorial Park has increased the average revenue per lot sold. Because some of these lots are not fully developed, approximately $0.4 million of net
pre-need cemetery revenue was deferred under the percentage of completion accounting method during the three month period in 2003. At-need cemetery revenue in 2003 increased 15% to $4.5 million compared to $3.9 million in the prior year. The
increase is attributable to a 2% increase in interments (2,366 in 2003) over last year and an improvement to the average revenue per interment.



Gross profit for the cemetery segment, as a percentage of sales, increased from 28% in 2002 to 32% in 2003. The primary reason for the increased margin is
the continued success of pre-need property sales.



Other:



Corporate general and administrative expenses increased
from $1.6 million in 2002 to $1.7 million in 2003. As a percentage of total sales, general and administrative expenses were 8% in 2003 and 2002. Included in general and administrative expenses is a $0.2 million accrual in accordance with the
employment letter agreement with the Chairman, who resigned from his position as the Companys Chief Executive Officer effective July 1, 2003. Interest expense for the quarter was $2.2 million, $0.8 million less than the previous year
reflecting the effect of the April 1, 2003 debt repayment.



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##### Table of Contents

SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002



Consolidated revenues for the six months ended June 30, 2003 were $40.7
million, an increase of 9% compared to $37.5 million for the six months ended June 30, 2002. Consolidated gross profit totaled $12.4 million compared to $10.9 million for the same period in 2002, an increase of 14%. As a percentage of revenue,
consolidated gross profit for the year to date increased to 30% in 2003 from 29% in 2002.



Funeral Operations:



Revenues from funeral operations for the six months ended June 30, 2003 decreased 6% to $15.8 million compared to $16.8 million for the same period last year. Excluding revenues from one discontinued location in September 2002, at-need
funeral revenues for the current year decreased 2% from the previous year to $14.2 million. On a same store basis, the Company performed 3,481 funeral service calls during 2003 compared to 3,564 last year, paralleling the 2% decrease in revenues.
The data published by the CDC within our primary Los Angeles market also indicate a decrease in deaths during the first six months of 2003 compared to the same period last year. The average revenue per funeral call increased from $3,774 in 2002 to
$3,848 in 2003. The increase in average revenue per call was due to changes in service and casket product mix and an average 5% service price increase in August 2002 at the affiliate funeral homes. Pre-need insurance commission revenue totaled $1.5
million compared to $1.9 million in the prior year, a decrease of 21%. This decrease was experienced in the second quarter of the year when the sales force began conducting new training sessions to increase persistency rates.



The operating margin for the funeral segment decreased $1.1 million from the
previous year to $4.7 million. As a percentage of sales, the operating margin was 30% compared to 35% for the same period last year. The decline in margin is predominantly due a casket margin decrease of 5% due to an increase in casket wholesale
costs effective January 1, 2003 without corresponding sales price increases. During the six months ended June 30, 2003, the Companys funeral and cemetery insurance and trust backlog increased $3.3 million to $182.6 million.



Cemetery Operations:



Revenues from cemetery operations for the six months ended June 30, 2003
increased 20% to $24.9 million compared to $20.7 million last year. Pre-need cemetery revenues increased 36% from $10.7 million in 2002 to $14.5 million in 2003. A favorable product sales mix, compared to last year, at Rose Hills Memorial Park has
resulted in an increase in average revenue per lot sold. Because some of these lots are not fully developed, approximately $1.0 million of net pre-need cemetery revenue was deferred under the percentage of completion accounting method during the
first six months of 2003. At-need cemetery revenue was $9.0 million, a 7% increase compared to last year. The increase is primarily attributable to an improved sales product mix. Total interments for the period were 4,861, a 2% decrease over last
year. Income from endowment care funds decreased $0.2 million from last year to $1.4 million.



The operating margin for the cemetery segment during the period was $7.7 million compared to $5.1 million last year. As a percentage of cemetery revenues, the operating margin increased from 25% last year to 31% in
2003. The increase in pre-need property sales is responsible for the profit margin improvements.



Other:



Corporate general and administrative expense was $3.1 million for the six months ended June 30, 2003 and 2002. As a percentage of total sales, general and
administrative expenses were 8% and also comparable to 2002. Included in general and administrative expenses is a $0.2 million accrual in accordance with the employment letter agreement with the Chairman, who resigned from his position as the
Companys Chief Executive Officer effective July 1, 2003. Interest expense for the first six months of 2003 was $5.0 million, $0.9 million less than the previous year reflecting the effect of the April 1, 2003 debt repayment.



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##### Table of Contents

EBITDA



The Companys earnings before interest expense, taxes, depreciation, and amortization (EBITDA) for the three months and six months ended
June 30, 2002 and 2003 are presented in the table below and reconciled to the accompanying financial statements (in millions):



|                                  |  | Three Months EndedJune 30, |     | Six Months EndedJune 30,
|--------------------------------- |  | -------------------------- | --- | ------------------------
|                                  |  | 2002                       |     | 2003                    
|Net income                        |  | $                          | 1.1 |                         
|Interest                          |  |                            | 3.0 |                         
|Taxes                             |  |                            | 0.9 |                         
|Depreciation and amortization     |  |                            | 0.9 |                         
|Amortization of cemetery property |  |                            | 0.5 |                         
|                                  |  |                            |     |                         
|EBITDA                            |  | $                          | 6.4 |                         



EBITDA is presented
because management utilizes the measurement in its evaluation of the financial performance from operations. EBITDA is also a widely accepted financial indicator of a companys ability to incur and service debt and it is the basis on which
compliance with the financial covenants under the Companys debt agreements is determined. EBITDA should not be considered in isolation, as a substitute for net income or cash flow data prepared in accordance with accounting principles
generally accepted in the United States of America, or as a measure of a companys profitability or liquidity. Also, this measure of EBITDA may not be comparable to similar measures reported by other companies.



LIQUIDITY AND CAPITAL RESOURCES



Cash Flow/Working Capital



Net cash provided by operating activities was $12.0 million for the six
months ended June 30, 2003, compared to $5.0 million for the same period in 2002. An increase in pre-need cemetery sales, reimbursement of prior year property tax payments related to the reduction of the 1996 property base taxable value of Rose
Hills Memorial Park received in 2003 and a one-time $2.5 million change in control payment to management in January 2002 were primarily responsible for the increase in cash from operating activities. As of June 30, 2003, the Company had a current
ratio of 1.69 compared to 0.32 at December 31, 2002. The improvement is predominantly attributed to the repayment of the Bank Term Facility on April 1, 2003 (see discussion below).



The primary use of cash has been for working capital and capital expenditures as permitted under the terms of bank
agreements. Although the Company has no material commitments for capital expenditures in 2003, the Company anticipates spending approximately $2.0 million in 2004 to reclaim approximately 13 acres of cemetery property at the Rose Hills Memorial Park
negatively impacted by land movement. The Companys capital expenditures during the first six months of 2003 of $2.2 million were used primarily to develop and improve the existing infrastructure and cemetery grounds.



Long-Term Indebtedness



Bank Term Facility



In connection with the 1996 Acquisition, the Company entered into senior secured amortization extended term loan facilities (the Bank Term
Facility) in an aggregate principal amount of $75.0 million and a senior secured revolving credit facility (the Bank Revolving Facility) in an aggregate principal amount of $25.0 million (amended in May 2001 to $10.0 million).



On April 1, 2003, the Company repaid all of the outstanding
debt under the Bank Term Facility using a $45.0 million cash equity contribution from Alderwoods and approximately $7.6 million of cash on hand. The Alderwoods equity cash contribution required an amendment to Alderwoods $75.0 million Credit
Facility



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##### Table of Contents

Agreement. Under the terms of the amended Alderwoods Credit Facility Agreement, Alderwoods obligations thereunder are guaranteed by RH Holding, the
Company and the Companys Subsidiaries, and the lenders thereunder have received a first priority security interest in and lien on all personal property of RH Holding, the Company and the Companys Subsidiaries and the real property of
eight affiliate funeral homes and cemeteries. Real property at Rose Hills Mortuary and Memorial Park is not included as security under the Alderwoods Credit Facility Agreement. The Company did not renew its Bank Revolving Facility which expired
April 1, 2003. Accordingly, the restrictions under the Bank Term Facility have ceased.



Senior Subordinated Notes



In connection with the 1996 Acquisition, the Company also issued $80 million of 91/2% Senior
Subordinated Notes due 2004, which were exchanged in September 1997 for $80 million of 91/2% Senior Subordinated
Notes due 2004 (the Notes) that were registered under the Securities Act of 1933. The Notes mature on November 15, 2004. Interest on the Notes is payable semi-annually on May 15 and November 15 at the annual rate of 91/2%. The Notes are redeemable in cash at the option of the Company, in whole or in part, at any time on or after
November 15, 2000, at prices ranging from 104.75% with annual reductions to 100% in 2003 plus accrued and unpaid interest, if any, to the redemption date. The proceeds of the Notes were used, in part, to finance the 1996 Acquisition.



The Company and its Subsidiaries are
subject to certain restrictive covenants contained in the indenture to the Notes, including, but not limited to, covenants imposing limitations on: the incurrence of additional indebtedness; certain payments, including dividends and investments; the
creation of liens; sales of assets and preferred stock; transactions with interested persons; payment restrictions affecting subsidiaries; sale-leaseback transactions; and mergers and consolidations. The indenture does allow for dividend payments
out of capital contributions received after the issuance of the Notes. In addition, dividend payments are allowed up to 50% of accumulated earnings (or if such accumulated earnings are a deficit, minus 100% of such deficit) since the issuance of the
Notes. As of June 30, 2003, $30.8 million of dividends are permitted under the Notes covenants. At June 30, 2003, the Company was in compliance with the terms of the indenture.



The Companys total indebtedness as of June 30, 2003 was $79.3 million. The Company believes that its existing and
projected cash flows will be sufficient to maintain its current level of operating activities through November 2004 when the Notes mature. On July 28, 2003, Alderwoods announced that it has begun efforts to refinance $325.0 million of
Alderwoods and its subsidiaries existing indebtedness, including Rose Hills 9.5% Senior Subordinated Notes, due in 2004. The new senior secured facilities are expected to include a $50.0 million revolving credit facility and a
$275.0 million Term Loan B. Alderwoods proposes to use a portion of the proceeds from the $275.0 million Term Loan B facility to retire $80.0 million aggregate principal amount of Rose Hills senior subordinated notes prior to their stated
maturity. Alderwoods announced that it expects to complete the refinancing on or before September 15, 2003. The proposed financing is subject to various conditions, and neither Alderwoods nor Rose Hills can assure that such financing will ultimately
be consummated. In the event that the refinancing is not completed, the Company will have to obtain new or additional financing to pay some or all of the principal amount outstanding on the Notes at maturity. No assurance can be given that such
financing will be available to the Company or, if available that it may be obtained on terms and conditions that are satisfactory to the Company.



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##### Table of Contents

Contractual Obligations and Commercial Commitments



The following table details the future principal payments of certain contractual obligations as of June 30, 2003 (in
millions):



|                              |  |       |      | Payments due by June 30,
|----------------------------- |  | ----- | ---- | ------------------------
|Contractual Obligations       |  | Total |      | 2004                    
|Senior subordinated notes (1) |  | $     | 80.0 |                         
|Capital lease obligations     |  |       | 0.4  |                         
|Operating lease agreements    |  |       | 0.4  |                         
|Non-compete agreements        |  |       | 0.5  |                         
|                              |  |       |      |                         
|                              |  | $     | 81.3 |                         

---

|(1) |  | Amount includes unamortized discount of $1.7 million as of June 30, 2003.
|--- |  | -------------------------------------------------------------------------



Off-Balance Sheet Arrangements



Under the terms of the $75.0 million Alderwoods Credit Facility Agreement, Alderwoods obligations thereunder are guaranteed by RH Holding, Rose
Hills Company and the subsidiaries of Rose Hills Company. The lenders thereunder have received a first priority interest in and lien on all personal property of RH Holding, Rose Hills Company and the subsidiaries of Rose Hills Company and the real
property of eight affiliate funeral home and cemeteries. Real property at Rose Hills Mortuary and Memorial Park is not included as security under the Alderwoods Credit Facility Agreement. The Alderwoods Credit Facility expires April 30, 2004.



As of June 30, 2003, there was a $20.0 million outstanding
balance on the Alderwoods Credit Facility.



ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.



The Companys market risk is impacted by changes in interest rates. Pursuant to the Companys policies, and depending on market conditions, the
Company may utilize derivative financial instruments (such as interest rate collar agreements) from time to time to reduce the impact of adverse changes in interest rates. The Company does not use derivative instruments for speculation or trading
purposes, and has no material sensitivity to changes in market rates and prices on its derivative financial instrument positions. The Company did not have any such agreements or instruments in place as of June 30, 2003.



ITEM 4.    CONTROLS AND PROCEDURES.



As of the end of the quarter ended June 30, 2003, the Companys Management, including its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure
controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended. Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that
the Companys disclosure controls and procedures were effective as of June 30, 2003 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities and Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Companys internal controls over financial reporting during the Companys
quarter ended June 30, 2003 that materially affected, or is reasonably likely to materially affect, the Companys internal controls over financial reporting.



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##### Table of Contents

PART II



OTHER INFORMATION



ITEM 5.    OTHER INFORMATION



CONTINGENCIES



During August and September
2000, the Company discovered that there had been some land movement in a portion of the Rose Hills Cemetery. The affected area represents approximately 13 acres of the Cemeterys approximately 1,400 total acres, and consists of approximately
12,000 interment sites. The Company hired outside geo-technical and engineering consultants to study the affected area to identify the underlying cause and the extent of the land movement, and to make recommendations with regard to both short-term
and long-term remediation and stabilization measures. The Companys consultants advised that the affected area could continue to move, particularly in the event of heavy rainfall during the winter months. Accordingly, during October 2000, the
Company began to take some intermediate remediation measures, including the installation of additional dewatering wells in the affected area and the relocation to other areas of the Cemetery (at the Companys expense) of approximately 140
interred remains that were in the most severely impacted portion of the affected area. Through June 30, 2003, the Company has accommodated over 1,250 additional families that have requested relocation of interred remains from the affected area.



Based on preliminary reports in July 2001 and additional
testing through October 2001, the engineering firm concluded that the land movement most likely had been caused by a combination of geologic, topographic, water and soil conditions within the affected area. The reports also identified a variety of
measures that the Company could take to remediate and improve the stability of the area, including the construction and installation of engineered reinforcement fill berms at the base of the slide, the installation of dewatering wells throughout the
affected area, and the implementation of other erosion control measures. Based on these test results and recommendations provided by the engineering firm, the Company decided to undertake complete restoration and stabilization of the affected area.
In the first quarter of 2002, the Company began its remediation of the affected area by installing additional dewatering wells. In June 2002, the engineering firm finalized their earthwork construction design plans, including the exact area that
would require disinterments and relocation of interred remains in preparation for the construction project. In May 2003, substantially all families impacted by the affected area have been notified and final disinterments and relocations have begun
and are scheduled for completion in the second quarter of 2004. The construction and installation of the reinforcement berms will begin after the necessary disinterments and relocations are completed with final construction to be completed by the
end of 2004.



In 2001, the Company reserved $3.0 million for
the estimated remediation project costs in excess of the availability of remaining Endowment Care Fund (ECF) improvement reserve funds. The Company spent approximately $1.0 million in each of the years ended December 31, 2001 and 2002 on remediation
and related costs. The Company has spent approximately $0.3 million on remediation and related costs in the first six months of 2003. The remaining remediation costs will be spent in the second half of 2003 through the end of 2004. As of June 30,
2003, the Companys remaining accrued liability totaled approximately $1.3 million and the ECF improvement reserve fund balance available for future remediation costs totaled approximately $1.9 million. Management believes, based in part on the
advice of its geo-technical consultants and the availability of ECF improvement reserves, the Companys reserve as of June 30, 2003 is adequate to fulfill future remediation cost obligations.



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FORWARD-LOOKING STATEMENTS



Certain statements in this Quarterly Report on Form 10-Q include forward-looking statements as defined in
Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included herein, including, without limitation, the statements under Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations regarding the Companys financial position and its plans to increase revenues and operating margins, reduce general and administrative expenses, make capital expenditures, and the ability to meet its
financial obligations, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.
Important factors that could cause actual results to differ materially from the Companys expectations include those which have been disclosed herein and in the Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2002. Persons should review the factors identified herein and in the Companys Form 10-K to understand the risks inherent in such forward-looking statements.



All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the qualifications in the preceding paragraph.



ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K



(a)    The Exhibit, as shown in the Index of Exhibits, attached hereto as page 21, is filed as part of this
                 Report.



(b)    Reports on Form 8-K.



Current Report on Form 8-K, filed April 11, 2003, announcing the repayment of Companys outstanding debt under the Bank Term Facility.



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SIGNATURE



Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



ROSE HILLS COMPANY/s/    MARY C. GUZMANMary C. GuzmanVice President and Chief Financial Officer,Secretary and Treasurer(Duly Authorized Officer and Principal Financial Officer)August 10, 2003




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INDEX OF EXHIBITS



|ExhibitNumber |  | Description                                                                                                                                                                  
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|*10.1         |  | Release Agreement, dated July 1, 2003 by and between Rose Hills Company and Dennis C. Poulsen.                                                                               
|              | 
|*10.2         |  | Letter Agreement, dated July 1, 2003 by and between Rose Hills Company and Dennis C. Poulsen.                                                                                
|              | 
|*10.3         |  | Amended and Restated Employment Agreement, dated July 1, 2003 by and between Rose Hills Company and Kenton C. Woods.                                                         
|              | 
|*31.1         |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 10, 2003.                                               
|              | 
|*31.2         |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 10, 2003.                                               
|              | 
|*32.1         |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 10,
2003.
|              | 
|*32.2         |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 10,
2003.

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|* |  | Filed Herewith.
|- |  | ---------------



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